The Globe and Mail, Number Cruncher
By Gary Christie
October 28th, 2019
In The Globe And Mail, Gary Christie uses Strategy Builder to search for stocks in the outperforming IT sector that are showing positive revenue growth and bullish price momentum.
What are we looking for?
Top-performing technology stocks that could help fuel a broad market breakout to record highs.
From a technical-analysis point of view, the S&P 500 index is attempting to break above a classic bullish-trend continuation pattern; the index is less than 1 per cent away from record highs at the 3,028 level. A breakout could have strong bullish implications over the next 20 business days. Global markets are participating in the action and a broad global rally could be in development.
Looking back over the past 20 years, the S&P 500 has returned an average of 1.1 per cent in November 74 per cent of the time, making it the second-best performing month in that period, according to data from Bloomberg and StockCharts.com. (April returned 1.7 per cent, 75 per cent of the time over the same 20 years.) This identifies November as being historically bullish for stocks – great news for bulls looking for a breakout in U.S. indexes.
The SPDR S&P 500 ETF Trust (SPY) is based on the S&P 500, which is a capitalization-weighted index. As a result, SPY is driven mainly by its largest stocks, which are mostly technology giants in the information technology sector. If a breakout to record highs is to happen, we need to see bullish momentum in technology stocks.
We will be using Trading Central Strategy Builder to search for stocks in the outperforming IT sector that are showing positive revenue growth and bullish price momentum. We begin by setting a minimum market capitalization threshold of US$4-billion. We wish to focus on large cap names in the market because of the greater stability and safety they offer.
Next, we will filter for stocks that have had a minimum percentage return of 20 per cent over the past 52 weeks, and 5 per cent over the past four weeks to find the stocks showing upside momentum.
Finally, we will look for tech stocks that are indicating revenue growth of at least 5 per cent last quarter compared with the prior year.
For informational purposes, we have also included the recent stock price, price-to-earnings ratio, dividend yield and year-to-date price performance.
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What did we find?
Topping our list is Synnex Corp., a provider of wholesale IT integration, distribution and outsourcing services. The company has the best price performance at 22.5 per cent over the past four weeks, indicating strong upside momentum. Although we did not use any price-to-earnings requirement when screening for stocks, it’s worth noting Synnex has the lowest P/E on our list at 12.6 per cent. Revenue growth also tops our list at 28.6 per cent, year over year.
SAP SE, originally known for its leadership in enterprise resource planning (ERP) software, has evolved to become a market leader in several areas, including enterprise application software and intelligent technologies. A cloud company with 200 million users worldwide, SAP has the largest market cap on our list at US$156-billion. Year-to-date performance stands at an impressive 32.4 per cent, with an 11.1-per-cent gain in the past four weeks.
Trading Central Strategy Builder provides a backtesting capability to evaluate how well an investing strategy would have worked in the past. Using a five-year historical period with quarterly rebalancing, the screen described had a 20.1 per cent annualized return over the past five years compared with 8.7 per cent for the S&P 500.
The investment ideas presented here are for information only. They do not constitute advice or a recommendation by Trading Central in respect of the investment in financial instruments. Investors should conduct further research before investing.
Select U.S.- listed IT stocks:
Gary Christie is head of North American research at Trading Central.